Laurence Kotlikoff - Maximize my SS.com

[pb4uski]

....Forget the emotional connotations of SS and think of the 62-to-70 deferral as a deferred annuity with no death benefit, for 96 monthly payments beginning at age 62. It takes 10.5 years for that annuity to pay for itself -- age 80 1/2. Is that a deal you would take if it didn't have the name "Social Security" attached to it? Would you take that deal if GEICO offered it?.....

Here's the math for taking SS at 70 vs 62. Let's say that your FRA is 67 and your FRA benefit is $1,000/month. If you claim at age 62, your benefit will be about 30% lower, or $700/month. If you claim at 70 your benefit would be 24% higher, or $1,240/month.

If you forego SS at 62 and delay to 70 then you will have forgone $700/month for 8 years, or $67,200 and you gain a $540 COLAed benefit for the rest of your life. An argument could be made that you give up more than $67,200 because of COLA, ok... so if you bake in a 2.75% annual COLA, the $67,200 becomes $74,036.

According to immediateannuities.com, $74,036 of premium at age 70 (male) would buy a $467/month non-COLA lifetime benefit, so by delaying SS you get an extra $73 per month plus COLA on the whole $540/month.

So now the question becomes whether you would be willing to pay $74k for a $540 COLAed monthly annuity benefit. IMO if your health is good that's a good deal.

 

[Big_Hitter]

^ don't you need to adjust those figures for the interim colas?

 

[daylatedollarshort]

Here's the math for taking SS at 70 vs 62. Let's say that your FRA is 67 and your FRA benefit is $1,000/month. If you claim at age 62, your benefit will be about 30% lower, or $700/month. If you claim at 70 your benefit would be 24% higher, or $1,240/month.

If you forego SS at 62 and delay to 70 then you will have forgone $700/month for 8 years, or $67,200 and you gain a $540 COLAed benefit for the rest of your life. An argument could be made that you give up more than $67,200 because of COLA, ok... so if you bake in a 2.75% annual COLA, the $67,200 becomes $74,036.

According to immediateannuities.com, $74,036 of premium at age 70 (male) would buy a $467/month non-COLA lifetime benefit, so by delaying SS you get an extra $73 per month plus COLA on the whole $540/month.

So now the question becomes whether you would be willing to pay $74k for a $540 COLAed monthly annuity benefit. IMO if your health is good that's a good deal.

Does this factor in if you die early your estate gets zero?

 

[pb4uski]

^ don't you need to adjust those figures for the interim colas?

I think you're right... I adjusted the "premium" (the SS foregone from 62 to 70 for COLAs, but did not adjust the benefit). If I did the benefit would be $540 * (1 + 2.75%)^(70-62), or $671.

So at age 70 would one be willing to pay $74k for a $671 COLAed lifetime monthly benefit (or a payout rate of 10.9% vs 7.6% for an at-market fixed annuity). Talk about a no brainer (assuming you can afford the $74k premium).

 

[pb4uski]

Does this factor in if you die early your estate gets zero?

No, the point is that is is a very good deal for a COLAed annuity IF 1) you want to buy a bargain priced COLAed annuity and 2) if you can afford to pay the premium (forgo SS from 62 to 70).

Obviously, like any SPIA without guaranteed payments, if you die the next day you made a bad choice and if you live long you made a good choice.

 

[samclem]

Does this factor in if you die early your estate gets zero?

If you are asking if the private annuity gives nothing to the survivors (like SS), the answer is yes. $74,036 gets a male 70 YO just $467 per month--without any COLA, nothing goes to survivors, no "period certain" etc. Just like SS. Well, except that SS pays a lot more for the same "premium" starting on month one, it has a COLA (a pretty big deal), and for a woman it's even a better bargain, relatively, than this private annuity (the private annuity for a woman, same premium, would yield just $435 per month (fixed), compared to $540 COLAd for SS).

I think "actuarilly neutral" misleads a lot of people.

 

[rodi]

All of these calculators tend to fail on the corner cases. They promote file and suspend for spouses - which only works if spouses are relatively close in age and/or the higher earner is older. They don't include filing early so that minor children can get a benefit.

The case laid out by cutthroat also doesn't consider the COLA for the interim years between 62 and 70...

That said - I think we all have our own spreadsheets, have our own biases, know if there's longevity, or early death, in our family history, etc. If I had a terminal disease - I'd definitely file sooner than later. If my grandparents and parents all lived past 90, I'd definitely file later.

There's no "NO BRAINER" answer that fits everyone.

 

[samclem]

All of these calculators tend to fail on the corner cases. They promote file and suspend for spouses - which only works if spouses are relatively close in age and/or the higher earner is older. They don't include filing early so that minor children can get a benefit.

Rodi, have you used Kotlikoff's analysis program? I haven't, but I have read that these types of details are among the things it handles well.

The case laid out by cutthroat also doesn't consider the COLA for the interim years between 62 and 70...

True. Historically, real CD rates have generally been positive, that would favor putting the lump sum in a CD ladder at 62 and taking SS at 70. (since the 62-70 SS check would increase at just the inflation rate, the available pro-rated amount from the money in CDs would grow slightly higher--historically, in general).

There's no "NO BRAINER" answer that fits everyone.

Yes, discussions here illuminating the factors pro/con (esp with numbers, if applicable) help each person get beyond the generalities. Sometimes the differences between courses of action are significant.

 

[daylatedollarshort]

A decision tree on when to take SS would take into account the probability of dying at different ages, the expected amounts of total SS benefits to be gained at each age, and possibly other factors - probability of benefit cuts or gain, increased / decreased taxes, etc. To have a complete analysis, a tree would show a non-zero probability of dying at the ages prior to cross over. Dying before 70 would result in zero benefits for ages 62 - 70. The probability of dying might be different for each of us based on unique factors - male or female, family history, prior history of disease, FoxO gene or not, risky hobbies, where we live, etc.

This doesn't rule out age 70 as the optimal age for many to claim, but it makes it far from a no brainer when all the possible years of zero benefits are added into the decision, as well as all the other years at 70+ prior to the cross over period.

 

[Big_Hitter]

^ agreed


a combination of deferred (to 70) and straight life (from 62) annuity factors would take into account the first sentence (sans taxes)

 

[ERD50]

ERD50, I appreciate your careful and polite statement. I understand what you are saying, and I understand that the SWR, as defined for example by Firecalc, is an historical (USA) worst case, for the span chosen. My issue is actually with the term, "Safe Withdrawal Rate". IMO it should be "SafeWithdrawalRate as defined by Firecalc", or whatever other thing is being used.

You should have seen my first draft!

Agree about the terminology, that's why I like to use HSWR, but even that seems wordy and awkward.

... I am not into SWR enough to be sure, but has there ever been a time within the years used by Firecalc when the going in PE10, or Tobin's Q, or US treasury rates have been as unfavorable as today? Has there ever been peacetime with today's level of level of government debt? This is just one example of how the US retiree is wading into a river that has not been waded before, at least not within the Firecalc database

I don't know either, but once again, I think we are heading to a distinction w/o a difference. If one decides to do some % of portfolio plan or never touch principal or whatever, a downturn could affect them as well, divs may drop.

And the big question - when to cut-back? Do it too soon, and you make sacrifices that you may never make up again. Do it too late, and you may have some real hard times ahead.

I will be looking more into the 'matching strategy' that DLDS has been talking about, if you can amass a big enough portfolio, put it in inflation adjusted products and take and adjusted RMD style withdraw (paraphrasing).

-ERD50

 

[haha]

You should have seen my first draft!

Agree about the terminology, that's why I like to use HSWR, but even that seems wordy and awkward.



I don't know either, but once again, I think we are heading to a distinction w/o a difference. If one decides to do some % of portfolio plan or never touch principal or whatever, a downturn could affect them as well, divs may drop.

And the big question - when to cut-back? Do it too soon, and you make sacrifices that you may never make up again. Do it too late, and you may have some real hard times ahead.

I think that there are differences, ie. situations to be preferred other others. I also think we will see before long how much things can change quickly. I disagree about when to cut back. IMO, if one needs to push his luck to stay in the game, he doesn't belong in the game.

I started SS 3years ago, for 25 years prior I lived on investment earnings. My motto has always been "don't get too cute". I also raised 2 sons, and made a large divorce settlement, and I am still swimming along.

If it were not that most of my equities are held in a taxable account, I would cut back very close to all low-duration fixed, and now or as close to now as possible.

Writing this, I am reminded that I do have a loss position, I should likely dispose of it tomorrow. It represents poor judgment, so it is not fun to wind it up.

Ha

 

[daylatedollarshort]

I will be looking more into the 'matching strategy' that DLDS has been talking about, if you can amass a big enough portfolio, put it in inflation adjusted products and take and adjusted RMD style withdraw (paraphrasing).

I don't think the matching strategies necessarily require a large portfolio - just low overhead in relation to your portfolio / other retirement income.

 

[ERD50]

I don't think the matching strategies necessarily require a large portfolio - just low overhead in relation to your portfolio / other retirement income.

Relatively larger then, with respect to spending.

It's almost always relative - there are people on this forum who spend 10x what some others do. Unless they change their spending, a portfolio of TIPS will require a relatively larger portfolio for either case.

-ERD50

 

[dwkopff]

This program was the only one available which could consider disabled adult child or child-in-care benefits when determining the optimal strategy---it also factors in young children eligible for benefits---very comprehensive

 

[samclem]

This program was the only one available which could consider disabled adult child or child-in-care benefits when determining the optimal strategy---it also factors in young children eligible for benefits---very comprehensive

Thanks much for the direct report on Kotlikoff's program. Sounds very detailed and useful.

 

[Dreaming of Freedom]

I am thinking about paying for a SS maximizing service because my fiance is 17.5 years older than me, and I have no clue when the best time is for each of us to take our SS benefits. He may not even be alive when I can finally take SS. His full SS benefit will be quite a bit bigger than my full SS benefit since I won't work 35 years and he has. I am curious when other couples in similar situations plan to take their SS benefits.

 

[pb4uski]

A decision tree on when to take SS would take into account the probability of dying at different ages, the expected amounts of total SS benefits to be gained at each age, and possibly other factors - probability of benefit cuts or gain, increased / decreased taxes, etc. To have a complete analysis, a tree would show a non-zero probability of dying at the ages prior to cross over. Dying before 70 would result in zero benefits for ages 62 - 70. The probability of dying might be different for each of us based on unique factors - male or female, family history, prior history of disease, FoxO gene or not, risky hobbies, where we live, etc. ...

More of an expected present value analysis which would take the cash flows associated with each alternative (say 62, FRA or 70) multiply the cash flows by the probability of survival and then present value the expected cash flows. Including taxes would be fairly easy with a couple assumptions.

The probabilities would be applied to all years, not just to prior to the cross over years. Discount rate is a key assumption, as it the COLA rate.

 

[Texas Proud]

I am thinking about paying for a SS maximizing service because my fiance is 17.5 years older than me, and I have no clue when the best time is for each of us to take our SS benefits. He may not even be alive when I can finally take SS. His full SS benefit will be quite a bit bigger than my full SS benefit since I won't work 35 years and he has. I am curious when other couples in similar situations plan to take their SS benefits.

First you need to convert him from a fiance to a husband... without that nothing else matters...


Now, after you get married.... it is really a no brainer in your situation... he takes SS the latest allowed... which is currently 70... that will maximize your survivor benefits....

 

[rayvt]

According to immediateannuities.com, $74,036 of premium at age 70 (male) would buy a $467/month non-COLA lifetime benefit, so by delaying SS you get an extra $73 per month plus COLA on the whole $540/month.

So now the question becomes whether you would be willing to pay $74k for a $540 COLAed monthly annuity benefit. IMO if your health is good that's a good deal.

To me the question is whether I'm willing to buy an annuity that takes 11.4 years to pay for itself.
Worse yet, if you can earn 4% above inflation, it takes 17 years to pay for itself.
To me, it is indeed a no-brainer. 11 years is too long a payback time, and 17 years is waaay too long.

Plus, I have to look at the utility of the money at the time I receive it. My Dad retired early and wanted to travel, but my Mom wanted to keep working a few more years to build up her retirement credits. By the time she retired, my Dad's health had deteriorated and they couldn't travel. Yes, they had extra money -- but it was worthless to them.

 

[Big_Hitter]

More of an expected present value analysis which would take the cash flows associated with each alternative (say 62, FRA or 70) multiply the cash flows by the probability of survival and then present value the expected cash flows. Including taxes would be fairly easy with a couple assumptions.

The probabilities would be applied to all years, not just to prior to the cross over years. Discount rate is a key assumption, as it the COLA rate.

agreed. this is the correct approach as the analysis has to take place at the same point in time.

 

[pb4uski]

To me the question is whether I'm willing to buy an annuity that takes 11.4 years to pay for itself.
Worse yet, if you can earn 4% above inflation, it takes 17 years to pay for itself.
To me, it is indeed a no-brainer. 11 years is too long a payback time, and 17 years is waaay too long.

Plus, I have to look at the utility of the money at the time I receive it. My Dad retired early and wanted to travel, but my Mom wanted to keep working a few more years to build up her retirement credits. By the time she retired, my Dad's health had deteriorated and they couldn't travel. Yes, they had extra money -- but it was worthless to them.

Any annuity is essentially a mortality bet... that is why they are sometimes referred to as longevity insurance... if you live long you are covered if you die early then your peers in the mortality sweepstakes benefit. My main point is that delaying SS is quite attractive compared to annuities available in the marketplace if 1) you want an annuity and 2) you can afford the premium... especially since it is hard to find a COLAed annuity these days and SS offers them for sale every day. If you defy the mortality table and live long delaying SS is very attractive.

 

[Totoro]

If you defy the mortality table and live long delaying SS is very attractive.

Isn't it also true that, if you don't care about the inheritance and you don't defy the mortality table delaying SS is also attractive?

This because you need to reserve much less of your own assets for the future and can spend the surplus today.

In addition, if health status before 70 changes dramatically you can always start claiming SS at any time.

 

[daylatedollarshort]

More of an expected present value analysis which would take the cash flows associated with each alternative (say 62, FRA or 70) multiply the cash flows by the probability of survival and then present value the expected cash flows. Including taxes would be fairly easy with a couple assumptions.

The probabilities would be applied to all years, not just to prior to the cross over years. Discount rate is a key assumption, as it the COLA rate.

What I posted was "A decision tree on when to take SS would take into account the probability of dying at different ages, the expected amounts of total SS benefits to be gained at each age, and possibly other factors."

My point was that the FA article calculations often omit the years prior to crossover in their analyses, which make the results seem more like a "no brainer" than they actually are because all possible outcomes aren't being considered.

 

[daylatedollarshort]

To me the question is whether I'm willing to buy an annuity that takes 11.4 years to pay for itself.
Worse yet, if you can earn 4% above inflation, it takes 17 years to pay for itself.
To me, it is indeed a no-brainer. 11 years is too long a payback time, and 17 years is waaay too long.

The same reason from another thread many of us are not putting in solar panels. Plus the possibility of any benefit cuts along the way, even if they have cute names like "chained CPI", would have to be factored in. If I remember right from the news, chained CPI would impact everyone on SS, not just those claiming after a certain age cutoff.